Category Archives: construction

What is the Time Limit to Sue for Deficient Design, Planning, Surveying, Supervision or Construction of an Improvement to Real Estate in New Jersey?

Does the time period to sue for deficient design, planning, surveying, supervision or construction of an improvement to real estate in New Jersey run from the substantial completion of a phase or component of a construction project or from completion of the entire project? This question was answered in State of New Jersey v. Perini Corporation, 425 N.J. Super. 62 (N.J. Super. Ct. App. Div. 2012).

In that case, the centralized underground system that distributed hot water through South Woods State Prison began to fail in 2000. The State of New Jersey claimed that the defects of the pipes were so serious that the entire system needed to be replaced. If not replaced, the prison would have to be shut down and all prisoners would have to be relocated. Plaintiff claimed the defects were a direct result of construction defects, product failure and design deficiencies. The state filed suit against companies that were responsible for the construction, materials and design of the system three days short of ten years from the date the certificates of substantial completion on the prison construction project were issued by the State.
The defendants argued that the claims were brought outside of the ten year limitation of the New Jersey Statute of Repose, N.J.S.A. 2A:14-1.1, which states:

No action, whether in contract, in tort, or otherwise, to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property,…nor any action for contribution or indemnity for damages sustained on account of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction or construction of such improvement to real property, more than 10 years after the performance or furnishing of such services and construction…

Plaintiff responded that the period should commence at a later point, namely when the certificates of substantial completion of the prison construction project were issued.
The court first noted that there was substantial precedent for the principle that the “ten-year statutory period runs from substantial completion of a component of a multi-phase construction project, not the completion of the project as a whole” Welch v. Engineers, Inc., 202 N.J. Super. 387 (App. Div. 1985).  However, the court also recognized that the above principles would not necessarily apply to multi-phase projects. The determination would hinge on the  meaning of the phrase, “improvement to real property” found in the Statute of Repose.
The Court found that:

The hot water system was not separately “an improvement to real property” within the meaning of N.J.S.A. 2A:14-1.1a. It was a component of an improvement, similar to the steel framing of a building, its roof, any mechanical or electrical system, or other components of a construction project

The Court noted that multiple phases of a construction project that are properly documented as separate projects in and of themselves can prompt separate periods of repose. In this case, however, the hot water system was not documented in that manner. Therefore, the statute of repose did not separately run from the point of completion of the hot water system.

The Enforceability of “Pay if Paid” Clauses by Contractors Against Subcontractors

A June 30, 2010 case decided by the Appellate Division of the Superior Court of New Jersey, O.A. Peterson Construction Co., Inc. v. Englewood Hospital And Medical Center, 2010 WL 2696758 (N.J.Super., App.Div. 2010) dealt with the issue of whether a contractor can withhold payment to its subcontractor under a “pay if paid” clause.
The Underlying Facts
Plaintiff O.A. Peterson Construction Co., Inc. (“OAP”) was the general contractor on a construction project for Englewood Hospital (“Hospital” or “owner”). On Par Contracting Co., Inc. (“On Par”) was one of the subcontractors on the project. The contract between OAP and On Par contained the following provision concerning OAP’s obligation to pay On Par:

“It is expressly understood and agreed that the receipt by the Contractor of payment for the Subcontractor’s work shall be a condition precedent to the Contractor’s obligation to pay the Subcontractor. That is, the Contractor shall have no liability or responsibility for any amounts due or claimed to be due the Subcontractor for any reason whatsoever except to the extent that the Contractor has actually received funds from the Owner specifically designated for disbursement to the Subcontractor.”

[Emphasis added.]
The Pay if Paid Clause  
OAP contended that this language constituted an unambiguous “pay if paid” clause, which shifted to On Par the risk of the owner’s nonpayment for the work. The Court agreed, stating, “[W]e find that the “pay if paid” clause unambiguously shifted the risk of non-payment to the subcontractor. That is, the clause clearly anticipated that as the contract progressed, the owner would make periodic payments to the general contractor, with portions being designated as payment for work performed by each specific subcontractor on the job. If the owner refused to pay for a particular subcontractor’s work, the general contractor was not obligated to pay that subcontractor until the dispute was resolved and the owner made payment.” Id. at 2
The Covenant of Good Faith and Fair Dealing
One interesting note is that the Court also decided that OAP was wrong to enter into a settlement with the owner that did not designate a portion of the settlement funds for disbursement to the subcontractor, and then rely on the “pay if paid” clause to defeat that subcontractor’s right to payment. It found that this argument would violate the covenant of good faith and fair dealing implicit in every contract.


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